Wednesday, March 20, 2013

16 Ways to Avoid a Haircut, Post 6

This is the sixth in an eight part series on how to resist price concession requests. Each two new tips will be posted each weekday for eight days.

Studies show that 74% of price cuts are started by sales
people, not customers. In legal services, that percentage may be much higher!
Lawyers agree to discounts on their hourly rates, often without a hint of a
prospect’s objection to the hourly rate. Here are some proven strategies for
resisting discounts and increasing profits.

11. Use uncertainty to your advantage. Ask to delay price
concessions until a sufficient track record of work has been recorded. Clients
are equal partners in controlling the costs of legal services. Some clients are
efficient, make decisions quickly, produce documents on time and give
consistent direction. Other clients are a drag on the efficient production of
work. Variable costs are what erode profits, not fixed costs. Without the experience
of how the client and you work together, any price concession is a crap shoot.
And, if your margins are truly tight, this piece of knowledge is critical.

12. This clause states that the law firm will adjust Most
Favored Nation (MFN) clausesrates to the lowest level enjoyed by the law firm’s
comparable clients. These clauses are notoriously poorly defined and vague.
Only companies with significant market power in the form of consistently high
volumes of legal work can demand and receive MFN status from their outside
counsel.

MFN status should not be granted for the following reasons:

1. Pricing decisions and the profit analysis is too fluid
and dynamic to apply equally to every client in a class.

2. Because lost profits from MFN agreements have to be made
up through pricing increases on other clients of the firm, MFN agreements place
an unfair tax on smaller or one time clients of the firm.

3. MFN agreements require additional monitoring and
paperwork which further reduces the efficiency of the delivery of legal
services. Finally,

4. MFN agreements can only be validated with certainty
through the sharing of the contract terms of other firm clients, potentially an
anti-competitive and/or unethical stipulation for all parties.

It goes without saying, if you would like to talk about training your lawyers in resisting pricing concessions, please give me a call. It costs nothing to talk.